Canadian industry body boosts oil, gas drilling forecast by 8 percent

CALGARY, Alberta (Reuters) - Canadian light oil producers will drill more wells than previously expected this year as the sector benefits from investors transferring capital out of the oil sands, the Petroleum Services Association of Canada said on Monday

An oil pump jack pumps oil in a field near Calgary, Alberta, July 21, 2014. REUTERS/Todd Korol

In an update to its annual drilling forecast PSAC said 7,200 wells will be drilled this year, 8 percent higher than its prior estimate of 6,680 wells.

The industry body said it had underestimated how fast investors looking for a swifter return on capital in a low oil price environment would switch from long-term investments in the high-cost oil sands to short-cycle liquid rich natural gas and shale oil plays.

“One of the events that played out that was not well understood at the time of the original forecast was the relatively quick impact of the transfer of investment out of the oil sands into the conventional sector,” said PSAC chief executive Mark Salkeld.

That helped boost the drilling rig count to more than 300 active rigs in the first quarter of this year, well above PSAC estimates of around 200, Salkeld added.

International energy companies have sold off around $23 billion in Canadian oil and gas assets this year alone, with the vast majority of deals taking place in the oil sands sector.

Cost cuts from oilfield services companies were also helping boost drilling, but Salkeld warned the slim margins could not support innovation and improved techniques in the sector.

He also said difficulties in getting oil export pipelines built and opposition to new infrastructure projects was hurting the energy industry, citing the decision by Malaysia’s Petronas to cancel its C$36 billion Pacific NorthWest LNG project in British Columbia last week.

“Canada continues to struggle with its place in the world of energy supply given our lack of access to tidewater and public support for infrastructure suggesting the lofty levels of activity seen in 2014 are likely a thing of the past,” Salkeld said.